Case Studies

Situation

• Lost a significant account, causing dramatic decline in financial performance.
• Fixed Charge Coverage fell below 1 - triggering a credit default - and was continuing to decline.
• Lender’s perception was company was slow in initiatives to replace lost revenue and cut costs. Despite having the account perform well for several years, lender fatigue was rapidly increasing towards exiting.
• The lender conditioned a forbearance to the company engaging a financial consultant. 

Consultant’s Actions

1. Negotiated a loan forbearance sufficient time to assess the situation. 
2. Assessed the business operations and constructed a baseline forecast with key assumptions for performance improvement, provided management with salient recommendations and assisted with implementations.
3. Developed and presented detailed turnaround plan to lender. However, the timeline for financial improvement to compliance was not accepted by the lender. 
4. Negotiated an extension to the forbearance to allow sufficient time for refinancing. 
5. Prepared a marketing summary, information memorandum, and financial and other data pertinent to prospective lenders conducting preliminary due diligence. 
6. Solicit prospective lenders and managed all discussions with interested parties.

Outcome

• Closed on the refinancing within 90 days.
• The exiting lender was paid in full, all conditions and milestones stipulated in the Forbearance were satisfied.
• The new lending relationship began with appropriate Availability and covenant structure to allow the Company sufficient time to execute its Turnaround Plan.

Situation

• The dramatic decline in commodity prices triggered margin calls on contracts to hedge customer supply agreements; margin calls consumed cash that exceeded Availability and created over-advance and default with the credit facility. 
• The company was in immediate need of a solution acceptable to lenders.
• The lenders conditioned any standstill upon the company engaging a consultant practiced in these situations.

Consultant’s Actions

1. Developed a 30-day agreement with the lenders for liquidity and sufficient time to devise a feasible Plan. Created a daily cash flow forecast and communicated with lenders each day to review liquidity and actual results vs forecast. 
2. In developing the turnaround plan: assessed forward contracts, identified and executed opportunities to reduce fixed costs and defer cash-consuming asset purchases. Developed detailed financial projections for cash flow and liquidity; rolling forward financial projections each week/month. 
3. The Plan, which was accepted by the lenders, provided the company with liquidity and time, and provided the lenders with a feasible return to compliance. 

Outcome

• The Plan achieved its targets, meriting the lenders to provide a longer duration agreement consistent with the Plan’s timeline for regaining compliance. 
• After four months of turnaround performance the Company was able to attract refinancing offers, with terms more favorable to its existing bank’s terms. Closing on the refinancing was achieved within 60 days of initiating due diligence. All parties were satisfied with the outcome. 

Situation

• Import/distributor of consumer products used in home had strong demand during COVID as residences became offices and entertainment venues. 
• Took on debt to grow the business, adding more fixed costs with warehouses and personnel. 
• Post-COVID, the company failed to adjust for slowing demand and for increased competition, resulting in higher/slower inventories and lower gross margins. 
• The declining financial performance defaulted FCC and Leverage; and accounts payable’s aging increased significantly. 
• The company’s internal initiatives had not produced results and were constantly underperforming forecasts. 
• The lenders requested the company to engage a turnaround consultant.

Consultant’s Actions

1. Assessed sales strategy and forecast methodology, analyzed inventory mix, analyzed customer net pricing, identified opportunities to reduce fixed costs, assessed management team, assessed departments, and assessed systems for analytics and accounting. 
2. Implemented an orderly reduction of inventory that permanently eliminated a significant portion of low-margin products.
3. Negotiated with customers on changes to policies for returns and for allowances.
4. Reduced fixed costs by closing warehouse, reduced warehouse and G&A headcount.
5. Replaced two senior managers.
6. Developed detailed weekly cash flow forecasts integrated with rolling 12-month financial projections including views of “what if” variables. 
7. Determined financial parameters to restructure the credit facility.
8. Negotiated terms of forbearance to allow sufficient time to execute turnaround.

Outcome

• Cash generated by reducing the inventory was used to pay down the credit facility and to reduce past-due with suppliers. 
• The new management team improved confidence with the Lenders by achieving business targets. 
• After six months of turnaround performance the lenders agreed to a debt restructuring supplemented by ownership that provided a long-term solution for the Company. 

Situation

• Branded apparel wholesaler and retailer defaulted on loan covenants. 
• The inventory was stored at two separate third-party warehouses located across country.
• The field exam revealed fraudulent reporting of collateral values on the borrowing base.
• The lender terminated the credit facility, the company abruptly shut down its wholesale business and terminated all employees. 
• The lender filed for the company to be placed into a receivership.
• The lender proposed Daniel Wiggins as receiver, and the court ultimately approved Mr. Wiggins and his firm as Receiver. 

Receiver's Actions

1. Took control of the property.
2. Obtained staff to administer the business wind-down, secured and stored the accounting books and records. 
3. Located and organized the records, obtained access to the Inventory and negotiated agreements with the warehouses and logistics operators. 
4. Initiated communications with the wholesale customers, identified unbilled shipments and generated new invoices.
5. Determined incremental value in operating the ecommerce retail business while seeking buyers for the inventory, the retail business, and the intellectual property.
6. Assessed valuation of the ecommerce business, solicited prospective buyers.
7. Facilitated the claims process, archived electronic data and emails, and disbursed the net proceeds from sale of assets.

Outcome

• Closed on sale transactions for inventory and business, the net recovery for the secured lender achieved expectations of the initial budget.
• Secured all books and records for legal discovery. 

Situation

• Company was negatively impacted by decline in revenue and margins caused by a combination of customers consolidating and re-pricing.
• Fixed Charge Coverage fell below 1 and triggered a covenant default.
• Lender’s perception was Company was slow in initiatives to replace lost revenue and cut costs. 
• Lender decided to exit the credit and stipulated the company to engage a financial consultant to assist in the turnaround and refinancing.

Consultant’s Actions

1. Communicated a strategy to stabilize and improve financial performance so as to exhibit a creditable pathway for an orderly refinancing.
2. Assessed the business operations, provided management with performance improvement recommendations and assisted with implementation. 
3. Constructed a baseline forecast with key assumptions for performance improvement; illustrated a reasonable pathway for financial improvement to >1 FCC. 
4. Negotiated forbearance terms with sufficient time to illustrate turnaround traction for refinancing. 
5. Prepared a marketing summary, information memorandum, and financial and other data pertinent to prospective lenders conducting preliminary due diligence. 
6. Solicited prospective lenders and led all discussions with interested parties.

Outcome

• The competitive refinancing process generated multiple term sheets for Company’s consideration of which one was select as the desired new lender.
• Dawi’s consultants manage the process to achieve Closing within the targeted schedule. 
• The exiting lender was paid in full, all conditions and milestones stipulated in the Forbearance were satisfied.
• The new lending relationship began with appropriate Availability and covenant structure to allow the Company sufficient time to execute its Turnaround Plan.

Situation

• Family-owned second-generation food distribution business.
• Customers predominately comprised of national brands restaurants. 
• The company’s financial performance was in steady decline, management had no answers, constantly missing budgets, and eroding cash availability.
• Upon next renewal, the lender refused to further extend without an assessment report from an independent financial consultant. 

Consultant’s Actions

1. Negotiated forbearance terms with sufficient time to allow for an assessment.
2. Studied picking velocity; developed and implemented program to re-slot warehouse. 
3. Developed analytics for warehouse pick efficiency; implemented metrics and installed voice-pick software.
4. Implemented scan-off software tools for its drivers to increase accuracy of delivered product.
5. Reviewed records for drivers and for safety, interviewed drivers; modified compensation program to better align with productivity, fleet maintenance, and safety. 
6. Acquired two new accounts, increased revenue and contribution margin.
7. Developed detailed financial and cash flow forecasts reconcilable to key assumptions.
8. Sought additional sources of capital.

Outcome

• Lender agreed to turnaround plan. 
• Restructured the line of credit by adding a subordinate participant that injected new capital. Increased the bank lender’s credit facility to fund working capital, enhanced the bank lender’s collateralization with subordinate participant and a higher priority on a mortgage.